DBRS Comments on Kinder Morgan Canada Limited’s Proposed Return of Capital to Shareholders
EnergyDBRS Limited (DBRS) noted that Kinder Morgan Canada Limited’s (KML; rated Pfd-3 (high), Under Review with Negative implications by DBRS) board of directors proposed to distribute net proceeds from the sale of the existing Trans Mountain Pipeline System and the Trans Mountain Expansion Project (TMEP) – after capital-gains taxes, customary purchase-price adjustments and repayment of KML debt – as a return of capital to KML’s restricted voting shareholders. The return of capital is expected to be approximately $1.2 billion or approximately $11.40 per restricted voting share. KML’s board also approved a proposal to affect a consolidation or reverse stock split of the restricted voting shares and special voting shares on a one-for-three basis. KML shareholders will vote on the proposals at a special meeting during Q4 2018. Subject to shareholder approval, the anticipated payment date for the proposed return of capital is January 3, 2019, with the reverse stock split to follow. KML does not expect the proposed return of capital or reverse split to have any impact on KML’s outstanding preferred shares or dividends payable thereon.
DBRS placed the ratings of KML and Kinder Morgan Cochin ULC, KML’s operating subsidiary (rated BBB (high) by DBRS; together with KML, the Company), Under Review with Negative Implications after the Company announced its proposal to sell the Trans Mountain Pipeline System and TMEP to the Government of Canada (rated AAA with a Stable trend by DBRS; refer to DBRS press release dated May 31, 2018, for details). KML’s strategy for its remaining assets is unclear at this time. With respect to its future strategy, KML indicated that it will be evaluating a full range of alternatives. Additionally, KML is preparing its 2019 budget and will provide guidance once the budget process is complete. DBRS will further review information as it becomes available with a view to resolve the Under Review – Negative status of the ratings.
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All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Pipeline and Diversified Energy Industry, DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuer; DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies.
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